The Rs 10,000-crore Indian direct selling industry could soon come under the stringent Consumer Protection Act, 1986, as the government on Monday unveiled a series of guidelines for states to regulate the sector.

In an attempt to cleanse the sector, the guidelines have prohibited use of pyramid structure and money circulation scheme in any direct selling company, besides ensuring a safety net for consumers through multiple steps.

The move comes two years after William Pinckney, managing director & chief executive officer (CEO) of the country’s largest direct selling company Amway was arrested for unethical circulation of money under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978.

The arrest had put the spotlight squarely on the domestic direct selling market and its operators, who’ve claimed all along that the 1978 Act unfairly targets them, bundling them with fraudsters.

“Direct selling means marketing, distribution and sale of goods or providing of services as part of a network of direct selling other than under a pyramid scheme,” the guidelines said.

Pyramid schemes or money circulation schemes have the same meaning as defined under Prize Chits and Money Circulation Schemes (Banning) Act, 1978, the guidelines said.

While disallowing a pyramid structure, the guidelines have defined such a scheme. A ‘pyramid-scheme’ is a multi-layered network of subscribers to a scheme formed by subscribers enrolling one or more subscribers in order to receive any benefit, directly or indirectly as a result of enrolment, action or performance of additional subscribers to the scheme.

But direct sellers have to comply with various conditions to operate as legitimate players in the country, the guidelines said. One is direct sellers have been barred from charging any entry fee from agents or compelling them to buy back unsold stock.

“These entities will have to enter into an agreement with direct sellers or agents, and give full refund or buyback guarantee for goods and services sold to them,” the guidelines said.

It also mandates firms to constitute a grievance redressal committee to protect consumers.

It has also laid down a remuneration system for agents engaged by direct sellers.

The guidelines lay down among other things features like mandatory carrying of identity (ID) card by all sellers and not visiting a customer’s place without prior appointment.

It also says that direct sellers shall inform the prospective customers about all the procedures for cancellation of an order, refund of money and return of the product, etc.

The Direct Selling Guidelines 2016 framework was released by the Food & Consumer Affairs Minister Ram Vilas Paswan and has been sent to the states and Union Territories for adoption.

They bar direct selling companies from charging any entry fee from agents or compelling them to buyback unsold stocks.

These entities will have to enter into an agreement with direct sellers or agents and give full refund or buyback guarantee for goods and services sold to them.

It has also laid down remuneration system for the person engaged by direct selling firms on sharing of incentives, profit and commission.

The guidelines have also made provision for appointment of monitoring authority at both central and state level to deal with the issues related to direct selling.

The direct selling industry meanwhile, wholeheartedly welcomed the new guidelines as a much-needed move to boost the industry which employs large number of unemployed youth and women.

“The guidelines on direct selling, issued by the ministry of consumer affairs, represent an important step which will safeguard the interests of consumers, as well as identify and help protect ethical direct selling companies. We believe it will spur the growth of direct selling in India and drive entrepreneurship,” Anshu Budhraja, CEO, Amway India, said.

Vivek Katoch, director-corporate affairs, Oriflame India said that the direct selling industry now has an operational and definitional clarity and what makes us more relaxed is that e-commerce websites won’t be able to sell the products of direct selling companies without their approval.

Jitendra Jagota, chairman, Indian Direct Selling Association said that the association welcomes the guidelines with open arms, while Amit Chadha from the same organisation said that now a exhaustive legislation for direct selling is awaited which would further strengthen the position of the industry having potential to reach Rs 15,000 crore mark by 2019-20.

“It would be important that these guidelines also get statutory teeth and be anchored to the Consumer Protection Act itself,” Shilpa Gupta, director-regulatory services, PwC said.